Shares of megakimmel a producer and marketer of caraway, Financial Management

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Shares of megakimmel a producer and marketer of caraway

Shares of MegaKimmel, a producer and marketer of caraway seeds, is selling for $50. A European-style call option with a strike price of $55 and a maturity of three months is selling at $2. Assume the continuously compounding risk-free annual rate is 5%.

a) What should a European-style put option sell for if it has the same strike price and maturity?

b) If the call-price is undervalued, will the put price be undervalued or overvalued?

c) What is meant by put-call parity?

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